A well-placed biotech investor says US policies are straining life sciences startups

LabCentral operates around Kendall Square in Cambridge, long held up as the epicenter of US scientific innovation. LabCentral recently launched what it calls an AI BioHub, which will provide equipment and real estate to companies using computer intelligence in drug development or other health care ventures.

Fruehauf’s other real estate venture, BioLabs, rents out lab space at more than a dozen hubs globally, including San Diego, Philadelphia, and Paris.

For drugmakers, these lab spaces have become a bedrock of the startup community, offering lab benches and equipment to entrepreneurs who are just getting started — sometimes before they’ve settled on a name for their companies. Hundreds of biotechs have rented space at LabCentral or BioLabs over the last decade.

Both businesses have been growing. But Fruehauf anticipates that the industry will begin to feel the impact of federal grant cuts, in earnest, by the end of the year or early next year.

STAT spoke to Fruehauf about how the dour investment market and federal disruptions are affecting startups and how his businesses are adapting.

This transcript of the interview has been edited for length and clarity.

There’s a big existential question, right now, about the future of US biotech compared with the rest of the world. What is your assessment?

I have the same perspective like everybody else right now. Unfortunately, it seems that we in the US are questioning our desire to lead a sector that we have traditionally led since the ’70s and ’80s, and Boston took a big role in that, and unfortunately the political leadership in this country is undermining that.

Other countries, they see it as an opportunity. Students who have graduated here from one of our schools might decide to not build their startups here, like I did and many other people did, and instead go back to their home country or a third-party country where they don’t have to worry about the visa status.

There’s a lot of fear, a lot of anxiety right now. But are you seeing any impacts, yet?

Every. Day.

I’m a cofounder of a venture capital firm, and I see the reality of our decision-making is colored by the uncertainty in the market. Why would anyone take a risk on an innovative technology, a new team, a new solution to a health challenge, if the outcome is now further clouded by political interference? It was previously difficult enough.

Our buyers, the buyers of our products, on the venture side, are the pharma companies. The pharma companies right now don’t know whether they’re going to be affected by tariffs. They don’t know whether they’ll be able to get the pricing that they want for their products, or will there be a 25 percent haircut?

Imagine what that means for the first-time entrepreneur. It’s basically impossible for a first-time entrepreneur to raise money. We see that every day at LabCentral and BioLabs, in vacancy rates. If you walk through LabCentral, there’s now vacancy. That was never the case. We used to run LabCentral with waitlists.

In the near future — I expect it to start in the third quarter, the fourth quarter of this year, but certainly we’ll see it in 2026 — the effects of the attrition in academia will hit and that will affect the frequency of investable innovation coming out of academia. We are already seeing layoffs in academia.

LabCentral just launched an AI accelerator. Why did that need to be its own specific venture?

I felt that we were at risk of falling behind. And of course, at LabCentral, at BioLabs, you always want to be at the cutting edge. We had seen over the last, maybe, two or three years that most companies, if not all companies, that are applying to our labs, are using AI in some way, shape, or form.

The AI BioHub now is a way for us to bring in experts, connect them, and match them with the companies, but also for us, honestly, to learn about this world in a more structured way. We need additional expertise. We need different skills. We need different resources for them. We want to learn with them and evolve our model.

The industry seems to be on the precipice of change. What changes do you think will impact the work that you’re doing at LabCentral, at BioLabs, or at Mission BioCapital?

AI will play a massive role. I do expect that the work of inventing drugs, inventing molecules, to change.

So far, the clinical data on drugs developed using some form of AI has underwhelmed a lot of people.

I’m not fazed by that, at all. I can say that with confidence, from what I see on the venture side, this is massive. This will massively upset and change for the better the time it takes, and therefore the money it takes, to get good drugs.

What are you thinking about the future of both of your shared lab space businesses? Will you be making changes in where you have accelerators, in the US or abroad?

We’re making those decisions in real time. And we had a board meeting at LabCentral, and this is part of the discussion, of course, like, where do we grow? Should we grow? Do we consolidate? There’s certainly not more incubator space needed in the Boston ecosystem. It’s too early to tell if those effects, like the hit on academia, are so hard that a place like LabCentral would no longer be needed.

LabCentral only operates in the Boston area. That’s the strongest, and still is the strongest, ecosystem. In other places, we are very carefully looking at expansion — very guardedly.

One of the theses of investing is that there’s always opportunity. Where do you think that there’s going to be opportunity for Mission BioCapital?

It is everywhere. It’s in Boston, but it’s also in Europe and it’s in Japan. Why? Because, as unfortunate as the situation is for founders that there’s no venture capital available for them, it’s a good time for investors to be making investments, because the prices are low, the valuations are down, and companies that are created now will have built into their DNA a fiscal discipline that was lacking from the companies that got funded during the hype years of 2020 and 2021.

It is true through all these investment cycles that we have seen over the past several decades that this is the time when you make the best investments, and I’m trying to push my partners to make more investments now.